Stanford Seminar - Building Billion Dollar Businesses

oh that was a very touching introduction thank you Tom this really is you know I do think that everything happens for a reason and it is a crazy but fortuitous day for me it truly is a full-circle moment I was literally in your seat not just 20 years ago but even last week so I have a huge appreciation for the power of this speaker series and it really is an honor to participate in it before I give my talk two quick caveats the first is is that today we're going to be talking about building venture scalable businesses or billion-dollar businesses and I want to say that that is just one slice of entrepreneurship it is an important slice but it is a narrow slice and I want to caveat this by saying that your first job if you feel the calling of entrepreneurship is to reflect within about what is authentically right for you and then to curry the resources talent and capital to get your mission to be realized and if that can't align with the venture-backed model you can do amazing things but every company and every venture is different and the second thing I just want to say is is that my intention here is to really distill the nuggets of insight that I've collected along the way over the 20 years since I was in your seat as a Stanford student and to share those nuggets and every now and then you'll pick out pick a nugget of insight that will come to you in life to try to distill those for you for anybody who's going down this path and my defining professional work experience was in venture capital and so that is why this talk is going to be about building billion-dollar businesses okay so we're going to be talking about building these grand scale types of businesses okay and so with that let me first give a some further details about Who I am Tom's introduction was fantastic I as as I said I graduated from Stanford with the bachelors in engineering and a master's in industrial engineering when I was at Stanford one of my hallmark experiences was as a Mayfield fellow and I worked at a company as an intern at a startup called extensity that went public I then worked at McKinsey in San Francisco and then at another startup with other Mayfield Fellows called zap tlit that raised a hundred million dollars in venture capital but then ultimately failed but my canonical work experience was as a venture capitalist at DFJ in Menlo Park so at dfj we funded and I got to see companies grow like Skype Tesla Baidu SpaceX so some phenomenal companies from the sidelines the one company that I championed when I was at the FJ was a company called justin.tv which Draper associates led an investment into that became twitch that get that was acquired for just shy of a billion dollars by Amazon so that was my first unicorn experience and then dfj became the anchor investor in the accelerator that I now run called Alchemist so Alchemist is backed by a bunch of VCS and other reputable institutions and we write small checks into a lot of companies a year we give typically thirty six thousand dollars to 70 startups a year and we were fortunate enough to be rated the top accelerator in 2016 by CB insights based on how much money our companies raised and we generally reviewed as one of the top overall accelerators we focus on any startups that monetize from enterprises and I mention that because we have seen the model of building startups on that venture back path we've had 137 companies close capital they've raised almost a billion dollars and we've had 34 acquisitions and these are some of our graduates some of whom have also been detail speakers in the class but we have many companies that are emerging out of alchemists that have literally raised over a hundred million dollars in capital and that are on that path of becoming a billion-dollar a unicorn based startup and so with that that is the experience that I have to inform the talk today and the first thing that I want to you guys to understand is you know in good whenever we teach the spirit of entrepreneurship we start from within but then we also teach good classic customer development and design thinking and when you're starting that when you're looking at these models I want you to also understand the incentives and the motivations of of the the venture capitalists that are providing the fuel that drives this specific type of entrepreneurship and it is a very powerful type of entrepreneur that we remember Tom would use but this the the industry venture capital is a powerhouse of an industry it's just 0.2 percent of our GDP and it's responsible for creating companies that are responsible for over a fifth of the economy so it is a powerhouse of an industry but it's a very idiosyncratic industry because literally of the 10,000 startups that get produced a year only 10 are responsible for 97% of the returns and so if you if you grok that further as a venture capitalist if you are have a fund it is very difficult for that fund to economically survive unless that fund is able to back companies that become worth a billion dollars and these are famously called from former ETL speaker Eileen Lee unicorns I love that name but also there's an issue with that name because they aren't fictitious they actually exist and part of our intention with this class is to demystify these unicorns as being real people who have flaws just like everybody else but build big companies and part of what I want to do today is just to unlock some of the hidden dynamics of how to build these billion-dollar unicorns but if you if you are a venture capitalist and you have a billion dollar fund you're getting that money from others and your job is to pay that money back ok so if you think about that if your goal is to pay back a billion dollars that means and if you assume that a venture capital fund can own 20% of a company and you know if you if they owned too much it creates incentives problems with the entrepreneurs that means to pay back a billion dollars you need to have five companies in your portfolio that become worth a billion dollars does that make sense and that's just to pay back the fund 1x to pay back the fund three times to make money you have to have 15 unicorns and and so returning a fund can be like captured captioning catching lightning in a bottle and and and the big issue is is that historically there's only around 25 companies that get created every year that become worth even at least just half a billion or above okay and so that is the nut of trying to figure out how to crack the venture capital industry as a venture capitalist in some senses you are a unicorn hunter if you do not fund a company that becomes worth that amount it is very difficult if you have a certain fund of a certain size to stay economically viable okay and so with that we're gonna talk today about are there any secrets around building companies that become worth a billion dollars or building these venture scalable businesses and the key insight here really is comes is distilled down from the Archimedes quote you know Archimedes famously said that if you give me a lever long enough and a fulcrum on which to place it I can move the earth and the the notion there is is that if you architect a system in the right way for the same amount of effort you can have a disproportionate return you know former ETL speaker Ben Horowitz who's a famous venture capitalist at Andreessen Horowitz he said this I think in another way where he basically says it takes as much work to start a mediocre business as it does to start a big business so you might as well go big you know I can assure you that if you are not succeeding as an entrepreneur you're not working any less okay you're working as hard if not harder to get by so if you're gonna go down the path of entrepreneurship you will be working hard and if you're going to be working hard and you have a mission that you care about part of the beauty of the opportunity that exists if you do align with venture capital is is that if you go big in some ways more resources can be thrown at you to solve that problem and so right now then what I want to discuss is how what are the what is the architecture that you can do to sort of invoke that Archimedes principle to create these disproportionate returns and the key insight here is to go from zero to hero you need to walk exponentially as opposed to linearly so we all know the difference between linear and exponential this is Stanford I know this is Silicon Valley but if I'm walking linearly it's just one two three four right if I walk exponentially it's one two four eight sixteen okay and you know if you're going from a million dollar valuation today to a billion dollar valuation in ten years what that means is that you need to grow a thousand x in ten years to grow a thousand x in ten years that means you need to grow 10x three times does that make sense so 10x every three years to grow 10x every three years you need to triple every year and a half or double roughly every 12 months I know it's basic math but just just rockin that or just internalizing that will make a lot of other things clearer about how the dynamics of Silicon Valley work and so just to make this graphical this is the growth of the internet from the 60s to the 2000s okay and it looks fairly linear but it's posted on a logarithmic scale but if you're the Internet it looks like things just grew at a normal pace you know they just grew linearly but if I shift that scale from a logarithmic scale to a linear scale that same data looks like this and suddenly it looks like something drastic happened in the late 90s there was an e in the curve and everything suddenly changed but the reality was is that the Internet the dynamics of how the internet was growing was steady it was just architected a way to grow multiplicatively and we who experienced the world linearly felt it as this big shift that happened in the late 90s and so we've already sort of gone over the math of this but basically we need to sort of double every year to get to that billion dollar outcome in ten years or if you want to do in a short period of time you have to grow even quicker okay and we all understood I think the difference between different growth rates so now then the question becomes so Ravi what are these architects or these mechanisms these drivers to architect something for multiplicative growth and I'm gonna we're gonna talk about a few but the overriding principle that I want you to understand is thinking about how you set things up so that there's positive reinforcement loops so that every action you take has a multiplicative effect and not just a linear effect so that the output is not a linear function of the input but it's a multiplicative output and so let me make this clear so we're gonna start with the first a first driver which is just simply gross margins gross margins is just the revenue minus the car the gross costs of producing an item so let's say that I am selling a cookie okay and it costs me 50 cents to make a cookie and I know all those ETL students are really hungry after they hear those lectures and so I camp out outside of class episode of Huang and my intention is to sell you a cookie and if I sell you that cookie for $1 okay my gross margins are 50 cents I sell you the cookie for dollar cost me 50 cents to make I make 50 Cent's of profit which means that how many cookies can I make next one cookie okay I sell that other cookie for $1 I make 50 cents of profit and I can make one more cookie so at 50 cents or a 50% margin my slope is zero does that make sense I am basically just making one cookie every every cycle okay if I have the insight to say you know what I'm not going to target the Stanford students I'm gonna go to a faculty club that's where they have the money and I'm gonna charge a buck 50 for that for that cookie suddenly just by shifting the price up to a dollar 50 my margins go from 50 percent to 67 percent but I sell that cookie for a dollar 50 at the Faculty Club it cost me 50 cents to make I make a dollar of profit which means how many cookies can I make I can make two cookies okay and if I sell both of those two cookies for a buck 50 each it's three dollars it cost me a dollar to make I have two dollars in profit which means I can make four cookies okay so just by doing that subtle shift of having the gross margins go from 50 percent to 67 percent I'm suddenly on a multiplicative path okay does that make sense and at 75 then let's say if you know what you feel like you know it's not the Faculty Club it's the Stanford mall that's where the real money is all the venture capitalists go and they shop there I'm gonna go to the Stanford mall and sell that cookie for $2 and it only cost me 50 cents suddenly I make 75% margins or a buck 50 I sell one cookie for 50 cents for two dollars I make a dollar 50 a profit I can then produce three cookies if I sell those three cookies for $2 each that's six dollars it cost me two dollars I make four dollars of profit and then I keep going up okay and so 75% then gets us up this got this magic growth clip of 3x I can start growing 3x at 75% and so one of the golden rules by the way is is that if you do not want to raise venture capital but you're like I do want to build a billion-dollar business if you can have your margins be 75% or higher and if you can bill up front if you can have people pay you before you have to build the product so if you can have people prepay for a year or Spotify before you deliver the service or prepay for a magazine then you can be customer funded and put yourself on that 3x growth curve - just to keep hitting things okay this is why venture capitalists love software because the costs as we increase these margins our growth rates become even more absurd and if you think about what's with software the cost of doing a Google search the the gross costs are just the energy of that server it's basically infinite it's basically nothing and this is why VCS hate hardware I mean just to oversimplify I don't want to speak for all aventure capitalists but Hardware requires capital you know you have to put in money your gross margins are lower you need to worry about distribution and all these other things okay and so these are some questions that I would ask if I was a venture capitalist and that I would also also want to arm you to understand if you're a founder building a business that's seeking venture capital or just trying to build a big business is understand what your gross margins are if you're building hardware understand what your bill of materials are and if you are building something that's going to be hardware like then you need to be able to answer the question of how do you finance the business to cover your cost of goods and that's a separate discussion that we can have later does that make sense so that's lesson one is gross margins the next thing that I think is a source and these are just sources of multiplicative growth of exponential growth they exist everywhere everywhere you see these positive reinforcing loops where the input can lead to an a multiplicative output pay attention but the other thing is technology and this is why investors love to fund companies that are built on new tech because tech is inherently exponential in how it grows this is the classic Kurzweil graph on Moore's Law and I know we have a sophisticated audience here Moore's law is just this notion that the density of transistors doubles every year and a half for the same price point effectively you everybody knows this experientially when you go and you buy your next smartphone it seems like it can do everything so much more than it could a year and a half ago and that this this trend has held true since the early 1900s the technology grows naturally on a multiplicative curve because the outputs of technology are the become the inputs to drive the next generation of technology we use the Intel chips to build the computers that design the next Intel chips if that makes sense so the outputs become the inputs and it naturally has an exponential curve you see this all over technology this is the growth of the internet which we had before which is doubling every 12 months this is magnetic data storage which doubles every 15 months but the core essence here is is that technology is an invitation it's an opportunity to take to really enter into a market with a weapon that might be creating a new opportunity that you didn't have before and so I would say actually the essential question that venture capitalists are looking for especially what I've seen from the top-tier venture capitalists is answering the question of why now what technologically exists now in your business that didn't exist before that allows your business to to succeed and so the essence of that is what you know why couldn't this business have been done three years ago and you should have an answer to that if it technologically could have been done three years ago or five years ago it's very hard oftentimes for somebody to believe that just no one of the other six billion people in the world just didn't have the idea what's more likely is that somebody tried the idea and it failed for a REIT for other reasons but if there was a technological reason why your business couldn't have existed before then that is credible then it sort of makes sense that nobody could have could have done it until now so answering that why now question is a very powerful one for both VCS and entrepreneurs and again you know we talked about exponential curves but really exponential curves are just what we call s curves where you're having some technology that then becomes more mainstream and then it gets replaced by another exbest curve and the cascading of those becomes this exponential curve so a couple questions then that you should think about if you're a founder or that you might be be ready to be asked if you go and present in front of an investor is if you are gonna argue that you're writing on some new technology or you're developing a core new technology as part of your offering they'll be prepared to answer is this technology advantage 10x better than the alternative the reason why investors will ask you for 10x is because just secularly with Moore's law everything doubles every 18 months so at least with the 10x advantage you have three 18-month doubling periods of a buffer or around for years you know of a buffer if you have less than 10x the world that's gonna catch up to you anyways so so think about if it's something significant the other questions that I would ask is that if I was a customer and I was going to evaluate you what metrics would I use to assess you versus the alternatives and how would you fare on those and if it's and if the advantage of something algorithmic think about what the trade-off is are you sacrificing speed for quality or something else you don't also need to do it something that is just purely technological you know the iPhone was really the birthplace of so many great companies like uber Spotify Instagram that technically really weren't building the chord disruption they were riding on the wave of the iPhone and that also is a fantastic is if you can ride an existing platform that is newly existing that just came that just came out that also can create huge benefits and be well received but then just be prepared to answer why you're gonna out cute everybody else and you can say hey we're using this new technology platform but we're gonna out execute everybody else for for these reasons I would say that this is it's going to be a very fun time if you to be a entrepreneur right now because because of the acceleration of Moore's law and because of how quick technology is expanding we are going to see 20,000 years of historical progress is going to be the equivalent what's gonna happen in the next hundred years or in the in this century so if you just extrapolate Moore's law going forward there are some intimidatingly amazing implications the first is is that you know we achieve the capability of a human brain for about a thousand dollars by the time most of you by the 2023 when most of you I guess will be 21 in this in this class when you guys went you know if you're a Stanford student today by the time you're 37 we'll have the capability of a human brain for a penny and by the time you're in your late 40s it will have the human races capability for a thousand dollars and by the time you're near 50s it'll be the whole human race for a penny and so if you can grok your mind to think exponentially to think about where the puck is headed and resist our natural tendency to extrapolate the future from the linear past there's so many opportunities there's so much power in democratized commoditized technology to take on all the you know very very deep deep problems that the world is facing so that's technology as a source of multiplicative growth and the final one and I do want to make sure that we have enough time for Q&A so the you know a final one to touch upon I would say is network effects which I know is sort of a buzzy term that everybody talks about these days but everybody understands what a network effective a network effect is something where a product becomes more valuable as its scales its users so as the volume of a product which is an amazing thing so usually as you scale volume quality suffers you know as you get bigger you worry that you're going to be delivering less quality but if you build a business that has Network effects the opposite holds true as you get bigger you deliver more value the classic example of this is Skype or whatsapp or any communication tool so if if if there is only if I tell everybody right now that hey I just built Raavi app it's exactly like whatsapp it's technically identical everybody should use it nobody's gonna join Ravi app even though I'm technically identical to whatsapp because the network is on whatsapp and the value is the network so or if for example with Skype if there is only one person on skype how many you can make zero calls if there's two people you can make one call if there's three you can make three if there's four you can make six every extra node that gets added to the network increases the number of connections and that's generally referred to as Metcalfe's law where the value of a communication platform is a proxy to the square of the nodes okay and so that's why communication driven platforms like Skype or whatsapp can be incredibly powerful others have calculated the value not just as the square of the nodes but also as an exponential as a 2 to the N value based on the permutations of the subgroups so if you look at the value of Facebook based on all the multitude of subgroups gap that can emerge you get an even greater aunt a greater response but the idea here is is that if you build a business with network effects every single additional node creates more value for each individual user and just to show you how powerful this is if you look at Facebook this is Facebook and it is impressive how quickly Facebook grew so Facebook grew at an incompressible I know that you see there at the bottom but what's even more impressive is the green dots are their revenue and and the line next to the green dots is a proxy of Metcalfe's law that you know that exponential growth that we were showing so as impressive as their user growth was it was even more impressive that their revenue was growing exponentially because of the network effects that are inherent in a social network to juxtapose that there's other great companies that were great phenomenon this is Angry Birds you guys know Angry Birds right Angry Birds is a single-player mode game phenomenon so if I'm playing Angry Birds that does not increase the value of your Angry Birds experience it is your Angry Birds experience does not increase with the volume of the users and so Angry Birds was amazing but it was completely linear in terms of its revenue was just a function of how many people downloaded it it didn't become more valuable at scale okay so thinking about how you can build businesses with network effects can also be very powerful and these again occur really whenever there's a positive feedback loop that can be communication like Skype or whatsapp or any social network that we've talked about it can be a market place so you know Craigslist or Ebay orphan are examples of really hard businesses to displace even though the technology is very very basic because there's liquidity of buyers and sellers together on this common marketplace or it can be a platform like the Apple operating system where developers are building on top of every developer that adds to Apple's operating system extends the functionality of the operating system which then also creates more value for valuable value for everybody that's involved and so there's a type of marketplace that happens with platforms it's no but and and I should say you know I was sort of speaking disparagingly about hardware a few minutes ago okay and you might say you know hardware so so bad why do you have all these beautiful software businesses like Google that spent 3.2 billion dollars on nest which is a hardware device for the home or Facebook which spent over 2 billion dollars for oculus which is these hardware devices why is hardware so disparaged if in fact these companies beautiful software business models are spending a lot of money for them and I would argue it's because Facebook you know is buying oculus because they don't want to be beholden to Apple which is the hardware platform that they are underneath because every time somebody downloads a Facebook app for your iPhone that becomes another user that another platform can use for for themselves so they may lose Facebook users to other platforms that they're trying to compete with and so ultimately they're beholden to the underlying platform which is what they want to own so I would argue that's why they went out to buy our so so the saving grace here is what I want to say is is that these platforms or network effects can be incredibly powerful and they can override even many of the other things that I was discussing before and it's no coincidence then that you know the the four of the tech companies that became worth the trillion dollars all have network effects that play Amazon's one of the biggest marketplaces Apple has an operating system it has a communication driven tools and marketplaces all of these a exists because for a reason and there's a reason why that drove such huge huge growth but I also want to say that there's a bunch of so these are some of the questions that you should be ready to answer if you are a founder and you're you're seeking a venture capitalist who's trying to rule you in or out as a unicorn they may ask a question of you know let's say you convinced them that your idea is a good idea they'll say well if you prove out your market if you prove out that what you're doing is great and the competitor creates a feature identical ripoff of your product why would a new customer still choose you and really what they're asking is art do you have any network effects you know just like nobody would use Rubby app even if it's technically identical because it's not about the technology it's about the network they're asking is there a long term differentiation that you have besides just the short term differentiation they may ask DVR offering as a product or a platform and again the platform it's is their strategic value and the customer beyond just the initial service you provide and I'll you know think about if you're if you want to focus on monetization engagement or growth if you're building something that has Network effects it may be important to focus on the long term game of growth or engagement first I want to end though by with with a note about you know there are a lot of companies that have Network effects that don't become a trillion dollar company or you know I think we're gonna be ending we were - we started talking about billion-dollar businesses let me know and by talking about true in dollar businesses okay so we had those four examples Apple Amazon Microsoft and Google or alphabet that are now trillion dollar companies and there are a lot of companies that that have you know there are a lot of companies that have a lot of smart minds that can learn all everything that I'm saying and hire the best smartest minds and don't become trillion-dollar companies and I think one thing that's hard to argue with this is that all four of those companies not besides just having and going after network effects they all and this is informed from a piece of deeper analysis that Jeff Moore did about five years ago on Apple and Amazon but they all four of those companies had founders at the helm as CEOs when they were publicly traded companies for a long period of time and I think that is not a coincidence okay because there is something about a founder that has the earned authority of its employees and and its constituents and it's stakeholders that can move companies in directions that even the smartest minds can't and there's something about the founder experience of starting from zero to one where you go through your own journey of getting knocked down and knowing who you are and being able to actually get in touch with that core in inviolable spirit that exists in bad times are good and this is sort of a time of reflection it's sort of a time of really getting actually in time in touch with that spirit that becomes an indomitable power even when you become famous and big and really these companies aren't just companies these are companies that build other companies and and and and and I think that's you know if you think about how Apple has moved from a desktop company to all these becoming the biggest music company the biggest phone companies now the biggest payments company or how Amazon went from an online book store to the biggest utility cloud computing company now the biggest home AI company that is now a simple linear academic map there is something else going on and what I want you to understand is that the essence of all this there is an entrepreneur behind these great big fictitious seeming companies that are unicorns or trillion corns okay that that is the indomitable spirit that is impossible to replicate or copy and so really the lesson that I would have for you today is to get in touch with what that means for you because you anybody can copy your technology nobody can copy you and so don't worry about trying to be somebody else just get in touch with what your best self is and then curry the resources around you to have that vision be realized and all of you founders are heroes in that in that sense so thank you we have about 10 minutes so I just want to make sure that we had enough time for for questions and thank you all for participating on this very special and interesting day so I will open it up for questions this is like entrepreneurship no risk no reward you have to raise your hand to ask yes back there so I was wondering you were talking about how to return exponential growth in the next century there are some people who think Moore's law of slowing down that we're getting like transistor Saturday to school so you think that we're still going to be able to maintain that sensation innovation without like yes this is a great question the question as I was saying that Moore's law looks like it's it's it's gonna keep continuing but there's a lot of people that are arguing that Moore's law is going to hit its limits because of a variety of reasons including the heat density of transistors hitting certain physical limits and so forth I think that's actually a good example of the s-curves cascading so Moore's law is that exponential curve and if you'd noticed that example that I showed of Moore's Law starting back in the early 1900's those weren't electric transistors in the early 1900 those were sometimes physical gates that were the original switches and I do think that transistors as semiconductor transistors as we know it may hit physical limits but I think there'll be a new paradigm that may replace those so whether that's quantum computing or some other variant that will allow us to shift that thing forward I do think that there that is what historically has held true so in my opinion it's not it's the I wouldn't conflate Moore's law with transistors transistors is one technology s-curve and Moore's laws of cascading of s curves that oh I'm gonna call it so Tina Seelig I'm very honored to have Tina here you know we can have all of those things in place at the beginning when they're conceptualizing their company or these things so the question from Tina is there's a founding entrepreneur need have all these things in place when they're starting their company or is this something that can evolve over time you do not need to have all of these things when you are starting a company so the the I think the irony of the path of entrepreneurs of entrepreneurship is is that it is this by focal exercise where in the beginning probably the most important thing is is is focusing the the there's I think the hardest thing when you're starting out as an entrepreneurs is that the worst decision can sometimes be indecision most of the decisions are going to be very gray and blurred and if you overwhelm yourself with too many things it can be paralyzing and so I do think that Tina's question and underneath that is a good lesson which is I don't want this to or paralyze the entrepreneurial spirit when you're beginning the key thing I think is to find something to like and to start liking it it's like buying some observation that came from come from a variety of places it can come from people it can come from the market it can come from a trend and start to just apply a curiosity rias mind to unearth what's going on there and have that dance between you and it to tell you what needs to happen this then becomes a toolkit I would say to help you reality test certain things so if there is a way that any of these things can be applied it can help support that growth so even just on gross margins if you can collect your cash upfront versus later that can have a profound just tactical impact on your business but it's not the essence of entrepreneurship these are just helpful adjustments effectively on the path thanks Tina yes I love justice but when I look at all your criteria when you funded it oh that's a great question so the question is I love Tesla but if you look at all of my criteria why would why would you fund it and so Tesla I would say and even SpaceX witch dfj funded and I do need to say that a lot of that is a testament to Steve Jurvetson is genius who is the venture capitalist to champion those investments at D F J but that's sort of the classic thing that you would learn in Business School not to fund because for all the reasons why you said it's it's hardware its capital intensive with SpaceX it can literally blow up so why would you fund that and I think the idea here is is that really the genius of Elon Musk is is that what you see as a car is not a car and what you see as a rocket is actually not a rocket and it's a question of shifting your your your viewpoint of what that is if you view Tesla as a car company it is not something that you would normally fund but if you view it really as an autonomous software platform that's and a data gatherer and idea exactly that is using this physical instrument of a car to do that it becomes a totally different opportunity and company yes I do I think anybody has a Tesla probably sees that as well I think it's because it's a Tesla is not a car company I think it is more in my view it is a profound data gathering an operating system that gets pretty good so the so the question is the revenues are linear so there's a so so I don't want to go into two minutes too many details around this but there is a difference between what's called willingness to pay an actual monetization and you know I think this goes back to this question of well how do you think about the balance between monetization and growth and engagement and sometimes if you try to if you if you try to focus on monetization at the wrong time you can win the battle but lose the war and I think there might be some of that going on with Tesla's considerations on things yes in the back so thank you so much I guess my question is that a lot of times in like the startup culture and the value here about the idea that go necessarily have to be the first mover a market and you can just take an existing idea and execute it far better and so as you know a season VC that someone who really is been entrenched in this industry for a while you talk a little bit more about what your thoughts are on that idea yeah so the question is there's this notion that you don't necessarily have to be the first mover if there's another idea if you can be effectively a fast follower that it can also be a path to success and some and perhaps it might be even better and there is the saying that Trailblazers carry arrows in their back and and so I I do think that I I think the the I do think there's multiple different types of companies if you're looking at it just purely from a financial lens that can become successes but I do think it's important to understand what your strategy is going to be so if you are a fast follower I think you want to be very explicit about why what you have to believe to believe that your to win and what are the lessons that you can take and learn and then what are the lessons that you're gonna do to extend your competitive differentiation so there's lots of examples of big companies that weren't the first Google wasn't the first search engine it was you know I think at the time there was over a dozen well-funded search engines there was a company called Friendster before before Facebook that wasn't funded by many of the top funds and so a lot of the canonical companies that we look at today actually weren't the first and I do think there was some virtue in seeing there is some virtue and in understanding timing where if you see that a phenomena is emerging usually from a venture perspective competition is validation not something that rules you out so when if a venture capitalist will often also ask you who are the competitors who are the alternatives if there is a space that is an opening from a financial perspective there's usually going to be three companies that will become significant winners one will usually go public but be unencumbered centaur trying to keep their power position so I do think the important thing is to identify if there's an opportunity there is a broader market opportunity and then to think about if it's something that you really want to care about because there is the battle of getting table stakes with whoever the front-runner is but that's not going to win the war what's gonna win the war is building something that's a long-term viable concern and that has to come from something more than just trying to copy somebody but really trying to extend where they're at but I do think it can be a very effective strategy you just have to be very focused on what you need to get done to displace them yes so investments as you've noted aren't necessarily I can stick up or down can you talk a little bit about your involvement in you know unicorn if you know it has its bumps in the road it's going up and you know ultimately it's and investment doesn't work out how you kind of chosen to step away any measures you take it wait okay yes happy to do so the question is can you talk about my involvement as when when we're backing unicorns just how that progression occurs especially if there are speed bumps around the way or even worse if there's things that retreat backwards you know the interesting thing is is that if you fund a company that becomes a unicorn oftentimes they're companies that are become these phenomena that require the least amount of work sometimes because they just you're in these moments of time and space where things just become they they they grow phenomenally quickly and in those moments sometimes the the bigger issues are around helping the companies or thinking about how the companies are going to scale but as a venture capitalist oftentimes when you're needed the most is when the companies are in moments of crisis and so the irony here is that sometimes the companies that grow the quickest need the least amount of help and then usually you get called in and consumed when there's some something critically going around the the cabinet to that I would say is on strategic transactions that's where your investors are can be incredibly critical so I can assure I can tell you that the strategic transaction of Twitch's acquisition by Amazon that was a very and that and I'm not saying that that was me at all but that was a very important strategic transaction to get that right and at those moments a very helpful board can be very very critical and and and honestly a lot of your time is spent when there are those speed bumps and they happen in so many ways many times that what happens is understanding how the companies are shifting and going through different phases where the thing that you are prioritizing before is not the thing that you need to prioritize in this next phase so if you're a privatizing growth before now you have to shift to monetization or from engagement to growth understanding those inflection points I think is where a helpful board member can really be involved in shifting the company and then in in in in very specific strategic transaction sourcing talent partnerships acquisitions things like that that is time I apologize I know that I want a little bit over but thank you all this is a this is this is the end of this season of the entrepreneur thought leader seminar thank you guys all for participating and we look forward to having you back next season

Channel: stanfordonline

Views: 7,232

Rating: 4.9613528 out of 5

Keywords: Stanford Online, seminars, MS&E472, Ravi Belani, Alchemist Accelerator, Stanford Engineering, entrepreneurship, Entrepreneurial Thought Leader, transformational venture-scale businesses

Id: oUvUCmOfI3M

Length: 43min 45sec (2625 seconds)

Published: Wed Mar 11 2020